Nayuki’s Tea (2150. HK): Comments on the 2022 annual report, accelerated store opening in 23 years, recovery potential is expected

The company released the 2022 annual report, and the performance is in line with expectations: the company's revenue in 2022 is 4.292 billion yuan, a year-on-year -0.1%; the net loss attributable to the parent is 469 million yuan (4.525 billion yuan in the same period in 21 years); the adjusted net loss is 461 million yuan (2.1 billion yuan) A loss of 145 million yuan in the same period of the year). In 22H2, the company's revenue was 2.247 billion yuan, +3.5% year-on-year; the net loss attributable to the parent company was 212 million yuan (the loss in the same period in 21H2 was 203 million yuan); the adjusted net loss was 212 million yuan (the loss in the same period in 21H2 was 193 million yuan).

1. Over the past 22 years, the company has been steadily developing stores, continuously reducing costs and increasing efficiency

By the end of 2022, the company will have 1,068 tea shops in Naixue, a net increase of 251 compared with the beginning of 2022. Among them, the number of first-class stores/second-class stores has increased by 178/73 respectively, and the plan to expand stores is progressing steadily. In terms of the single-store model, the company continued to promote cost reduction and efficiency increase:

(1) On the labor cost side, the company has successively launched automatic tea-making machines and automatic scheduling machines in 22 years to reduce the number of employees in a single store through the automation system;

(2) On the rental cost side, the company actively promotes transforming the guaranteed minimum rent model into a pure deduction rent model. The company continues to obtain more favorable points with the improvement of the brand's bargaining power. Despite being severely impacted by the epidemic, the operating profit margin of Naixue’s tea stores in 22 years still reached 11.8%, a year-on-year decrease of only 2.7pct.

2. In 22 years, the company's store efficiency was seriously damaged, and the current recovery momentum is good

According to our calculations, due to the impact of the epidemic, the company’s Naixue’s tea single store revenue in 22 years was 3.72 million yuan, a year-on-year -25%; among them, affected by the company’s new product price band and the impact of the epidemic, the unit price of customers in 22 years was 34.3 yuan, a year-on-year -17.5% %, the average daily order volume of a single store was 348.2 orders, a year-on-year -16%. However, the company's brand potential is still strong, and the repurchase rate of monthly active members in 22 years is +1.9pct year-on-year to 26.3%. Over the past 23 years, the company's single-store efficiency has recovered rapidly with the improvement of the epidemic situation. In March, the company's average store efficiency recovered to about 115% year-on-year, and the average order volume recovered to about 130% year-on-year. The current recovery momentum is good.

3. Positive guidelines for a store opening in 23 years and recovery potential is expected

According to the company’s communication, in terms of exhibition stores, the company plans to open 600 stores in 23 years, mainly in high-tier cities; in terms of single store model, with the recovery of single store revenue, the proportion of labor costs and rental costs of the company’s stores is expected to increase in the short and medium term. Respectively reduced to less than 20%/15%, the store operating profit margin is expected to maintain at 20+%; combined with factors such as diluting headquarters labor costs, the company is expected to achieve a 5% net profit margin target in 23 years.

The company’s 23-year guidance is positive. We raise the company’s revenue forecast for 23-25 to 8.1/10.8/14.1 billion (previously 23-24 was expected to be 7.2/9.7 billion), a year-on-year increase of +88%/33%/31%. The net profit attributable to the parent is expected to be 4.26/8.2/1.3 billion yuan (previously expected to be 209/436 million yuan in 23-24 years), +191%/93%/58% year-on-year, and the corresponding PE in 23-25 years is 30/16 respectively /10x, upgrade to "buy" rating.

Risk warning: the epidemic is repeated, the macroeconomy is down, and the competitive landscape is deteriorating.